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Like many other South American countries, Argentina faces high inflation. This economic situation is leading Argentines to abandon the local peso in favor of alternative currencies. A recent decision by the government may further boost the use of Bitcoin in Argentina. Let’s take a look at the economic situation in Argentina and the observed growth of Bitcoin in the country.
The economic situation in Argentina
Inflation in Argentina is causing prices in the country to rise. Goods and other products are becoming more and more expensive. Faced with the instability of their local currency, Argentines have no choice but to turn to cryptocurrencies or foreign fiat currencies, such as the U.S. dollar. As a result, many Argentines now store their money in dollars. This is a way for them to protect their savings against the devaluation of the Argentine peso.
In 2020, the demand for dollars in Argentina grew by 900 percent. At the same time, the number of people using the dollar jumped between April and August 2020, from 435,000 to more than 5 million!
However, this new way of saving is worrying the Argentine government. In addition to further weakening the local currency, the US dollar reserves of the Argentinean central bank are also beginning to dwindle. According to an economist from the firm FM&A, the Argentinean central bank should be able to distribute about $1.1 million per month to keep up with this fundamental shift. But this is simply not sustainable in the short term, since the central bank’s reserves as of August 2020 are estimated at only $8 million.
Bitcoin, the best alternative to the dollar in Argentina
Faced with this worrisome situation, the government has put in place restrictions. For example, it is not possible to purchase more than $200 American dollars per month. Last week, the government decided to go even further. It instituted a 35 percent tax on all purchases made in US dollars.
In the face of these new restrictions, more and more Argentines are turning to cryptos for their savings or for everyday transactions. Like in Venezuela, Argentines see cryptos as a new safe haven. A recent survey showed that 73% of Argentines consider cryptocurrencies to be the best support for their savings.
Moreover, Bitcoin is also used to make the gateway to the dollar. This is why it is sometimes also called “Bitcoin dollar”. Thus, Argentines can buy Bitcoins and then convert them into dollars to buy products from abroad.
Witness to this massive use, the city of Buenos Aires is regularly cited among the top 10 most Bitcoin-friendly cities in the world. More than 100 retailers now accept Bitcoin transactions. In addition, the city has a dozen Bitcoin ATMs.